CVS soars after fourth-quarter profit signals improvement
CVS is trying to turn around its drugstore chain and insurance business, where profit has been hit by underpricing of plans and cuts to quality ratings that help determine payments from US health programs. Chief Executive Officer David Joyner, who took the helm in October, has said that a recovery will take years.
They company is 'encouraged' by recent conversations with the government about payment rates for Medicare Advantage, a private version of the US health program for older and disabled people, Joyner said on a conference call. Rates proposed by the government didn't take into account increased health-care use and costs, he said.
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The company is also being pushed for change by activist investor Glenview Capital Management. Its CEO, Larry Robbins, one of four new members who have joined CVS's board, has said that the company should bring down debt.
Medical Costs
In the insurance unit, CVS spent 94.8 percent of premium revenue on medical care in the quarter, less than analysts expected. Investors prefer a lower number. However, CVS said in a separate filing that high use of medical services will continue to pressure the business.
The company pointed in particular to high costs in its business that manages care for patients on Medicaid, the US health program for the poor. States have been cutting Medicaid rolls since the pandemic, often culling healthier patients in the program while sicker patients remain.
Revenue in all major divisions — insurance, drugstores and health services — were ahead Street expectations, as was overall quarterly revenue of $97.7 billion.
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Adjusted earnings for 2025 will be $5.75 to $6 a share, CVS said, while the average estimate of analysts surveyed by Bloomberg was $6. CVS called the guidance an 'appropriately achievable baseline' with 'opportunities for outperformance.'
Investors had expected the 2025 profit outlook to come 'comfortably below' analyst estimates, so CVS's expectation 'looks fine,' Leerink Partners analyst Michael Cherny wrote in a note to clients.
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